The Morning Risk Report: Survey Highlights Compliance Dangers

February 2018

Fewer than one in five companies give compliance staff substantive roles in handling major mergers, and more than half have unresolved compliance problems that regulators have yet to discover, according to a survey of 537 companies with annual U.K. revenue of at least GBP1 billion ($1.4 billion). Compliance experts say those findings from law firm Baker McKenzie both point to high levels of concern among executives and suggest ways companies can do better.

"It is a surprise to me that the corporate folks would even give out this much information to a survey taker," said Joseph Murphy, author of the book "501 Ideas for Your Compliance and Ethics Program," of the finding about undisclosed compliance problems. "Why would any corporate person say to an outsider 'my company is breaking the rules?' It suggests a very high level of anxiety and frustration for them to express this degree of concern." Jo Ludlam, co-chair of Baker McKenzie's global compliance and investigations group, agreed in an interview the finding on disclosure was a surprise, although she noted there are legitimate reasons not to report a compliance problem, such as when a situation doesn't clearly represent a violation of the law.

Also surprising, Ms. Ludlam said, are two related findings. One is that 18% of companies involve compliance staff "substantively" in planning and executing big mergers; the other is 40% of organizations said they discovered a compliance issue with a new acquisition only after the deal went through. Baker McKenzie said its research found a lack of compliance involvement spans a variety of commercial activities and compliance staff are "deliberately kept out of the loop" for fear of issues being uncovered." The survey results, Ms. Ludlam said, highlight an opportunity for companies "to reposition compliance as something that's good for business rather than a tick-box exercise they are obliged to do." Nathan Lankford, a Miller & Chevalier lawyer who focuses on international compliance and the Foreign Corrupt Practices Act, said the survey could help make the case for a more central corporate role for compliance. It found, he noted, that expanding companies are more than twice as likely to involve top compliance staff in key decisions, including mergers, than companies that are shrinking.

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EXCLUSIVE ON RISK AND COMPLIANCE JOURNAL

U.S. Treasury prioritizes sanctions staff amid shutdown. The U.S. Treasury kept many of its sanctions and counter-terrorism officials working during the government shutdown, according to a contingency document released by the department, marking a shift from its decisions in the 2013 closing.

COMPLIANCE

Manufacturers spar over tariffs' employment impact. President Donald Trump's move to slap tariffs on imported solar panels and washing machines is meant to revive domestic industries struggling to fend off foreign competition. But in the affected sectors, there is little agreement on whether it will actually jump-start U.S. manufacturing and jobs, the WSJ reports.

EU cuts number of countries on tax haven 'black list.' The European Union cut the number of countries on its list of noncooperative states on tax matters nearly in half Tuesday, removing big names and leaving only small countries. It published a longer list of 17 noncompliant countries only last month, the WSJ reports.

Fox takeover of Sky is dealt a setback. British antitrust regulators said Tuesday that 21st Century Fox Inc.'s proposed $16 billion acquisition of the 61% of U.K. pay-TV giant Sky PLC that it doesn't already own would be against public interest and would give the Murdoch family too much influence in the British media, the WSJ reports.

States grapple with federal tax cuts. U.S. state legislatures will be wrestling in coming months over how to respond to federal income-tax cuts that could raise tax bills at the state level. State lawmakers must choose whether to conform their systems to the new federal rules, cut tax rates to prevent rising tax burdens or spend potential revenue windfalls, the WSJ reports.

Seoul cracks down on anonymous bitcoin trade. South Korea's finance regulators are expanding measures to verify cryptocurrency investors' identities. Korean regulators Tuesday said only individuals with verified bank accounts linked to cryptocurrency exchanges will be able to inject more traditional money into virtual currencies, the WSJ reports.

Ex-Fiat executive admits illegal payments. Alphons Iacobelli, a former Fiat Chrysler Automobiles NV executive, pleaded guilty Monday to making illegal payments to United Auto Workers union leaders and to filling a false tax return that failed to include $840,000 in income illegally siphoned from the company, the WSJ reports.

GOVERNANCE

Tesla updates pay for Musk. Tesla Inc. said it updated the pay package for Chief Executive Elon Musk with a plan that again ties his compensation to performance. The plan entails stock options that would vest in 12 tranches, if two performance milestones are achieved. For each tranche, Mr. Musk would get shares equal to 1% of Tesla's shares outstanding as of Monday, the WSJ reports.

REPUTATION

USA Gymnastics chairman steps down. Paul Parilla, the chairman of USA Gymnastics and two other board members resigned Monday following a public outcry over the board's handling of a sexual abuse scandal involving the former women's national team doctor, Larry Nassar. Mr. Nassar has pleaded guilty to sexual-assault charges, the WSJ reports.

OPERATIONS

Quake brings tsunami warning for Alaska. An earthquake with a magnitude of 8.2 occurred underwater off the coast of Alaska's Kodiak Island, leading to a tsunami warning for much of the coast of Alaska and Canada's British Columbia, the AP reports. The rest of the U.S. West Coast was under a tsunami watch.

Philiippine volcano erupts. Mount Mayon, the Philippines' most active volcano, erupted Tuesday, forcing 56,000 villagers to evacuate, the AP reports. A volcano in Japan also erupted, injuring at least 16 people skiing on its slopes. One person later died.